Inside Look: Merrill Lynch and Goldman Sachs Conspiracy

Employees at Merrill Lynch — a subsidiary of Bank of America (NYSE:BAC) — and Goldman Sachs Group (NYSE:GS) discussed helping naked short-sales by market-maker clients in e-mails the banks attempted to keep secret. Overstock.com (NASDAQ:OSTK) said in a court filing that a Merrill official told another to ignore compliance rules.

Overstock accused Merrill Lynch (NYSE:BAC) and Goldman Sachs (NYSE:GS) of manipulating its stock from 2005 to 2007, causing its shares to fall. According to court filings earlier this year, clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry.

In January, Overstock’s California state court lawsuit in San Francisco was dismissed. Goldman Sachs and Bank of America convinced a judge to dismiss the lawsuit filed in 2007. The judge threw out the case on the grounds that the alleged conduct in the complaint did not take place in California. Both banks have denied any wrongdoing.

However, lawyers had asked a judge to make public the emails sent in 2005 and 2006 that reflected the business decisions to put profits and corporate ambition over compliance at Goldman Sachs and Merrill. The banks’ decision to delay delivery of Overstock shares resulted in large-scale naked short selling of the company’s stock. Overstock maintains that large portions of its stock were the subject of naked shorting, leading to instances in which the short position in its stock exceed the entire supply of outstanding shares.